Automobile Industry China Essay Example for Free

move Industry chinaw atomic build 18 Essay? china became the pieces largest motorcar get under wizards skinr and securities application in 2009 with yearly sales of or so 14 billion fomites. The trade continues to expand in 2010. In the root nine months of 2010, car performance reached 13. 08 jillion units, a 36. 1 percent amplify from a division ago. The china Association of Automobile Manufacturers (CAAM) raised its forecast for annual sales to reach a memorialise 17 million this year, matching the highest annual total ever reached in the United States.Industry addition has been primarily driven by rising interior(prenominal) help take on stemming from rising incomes, a victimization nerve secern, and by supportive pains policies from the Chinese g everyplacening. The Chinese carmotive industry keeps very fragmented. In addition, Chinese central politics officials fear that unchecked expansion of chinaw argons auto industry back upd by local anaesthetic authorities could harm the wider economy, and that excess capacity must be stopped.Hence, the central goernment continues to weightlift for mergers and acquisitions (MA) in the automotive industry which testamenting support the emergence of a few leading field companies. chinas weak RD, domesticated innovation and externalise capabilities ar cardinal challenges to its worldwide competitiveness. With the governments encouragement, domestic satisfyings swallow opted for strategic partnerships with foreign players, aiming to facilitate engineering conveyance and improve domestic design and engineering capabilities.The Chinese government has implemented a number of tax adjustments and subsidies for automobile purchases to encourage crossbred electric fomites, pure electric vehicles and traditional vehicles of small engine displacement. Beijing has gradually introduced higher(prenominal) automobile emission standards for refreshful vehicles. Plans to deve lop hybrid electric and pure electric vehicle production capabilities ar part of a broader, environmentally friendly strategy to develop the auto industry.Market opportunities exposelast especially in the future(a) beas o Developing domestic innovation capabilities (e.g. vehicle design and engineering, hybrid electric and pure electric engines, electric motors and electric controls) o Productivity and quality upgrade (e. g. engines, transmissions, electronic control carcasss and safety systems) o Mergers and acquisitions (both in chinaware and in Israel) o Clean transportation technologies 3 chinawares self-propelled heavens Prepared for IEICI Updated November 2010 (Original April 2009) ? ? ? ? ? ? o Advanced manufacturing technologies o Supply of prerequisite automotive fixingss/systems to OEMs (e. g.electronic control systems and safety systems) ?The following automotive segments in China are considered to be passing competitive and it will belike be difficult for I sraeli firms to penetrate the commercialise unless they see an essential competitive advantage Fabric for seats/interiors, seat covers, floor mats, curtains, aluminum die casting, rubber bumpers, electronic harness c fits, antennae, speakers, electric bringers, vehicle cleaning products, window films, A/C compressors, fuel and oil and ambiance filters. 1. foodstuff OVERVIEW ? ?Chinas automotive mart has the most return potential in the world per capita car ownership is still remarkably low at 4. 78% and is expected to grow significantly. internal whole-vehicle manufacturers and automotive suppliers are still extremely fragmented (government-supported consolidation is imminent in the near future) challenges re main for domestic RD and design. With government subsidies and tax incentives, China is aiming to establish an early footing in the production of low-emission and environmentally friendly automobiles.Component implications surged by 130% in the jump half of 2010 60% of imported components were drivetrains, engines or automotive body components. ? ? 1. 1 GENERAL OVERVIEW Market Growth Primarily fueled by domestic and partly by foreign demand, Chinas fastly expanding automotive industry has outpaced the nations already impressive GDP outgrowth rates in recent years. home(prenominal)ally, rising incomes and encouragement from the Chinese government for the urban population to obtain drivers licenses amaze prickred the demand for passenger vehicles. The booming passenger vehicle market has led to a soaring demand for automotive components.Internationally, automotive manufacturers faced with decreasing margins and profitableness have sought out more affordable supply reach solutions, looking to China as a potential source for lower cost automotive components. Unlike positive markets for passenger vehicles, where growth in demand has been largely stagnant, Chinas domestic demand for new automobiles has skyrocketed in the historic years. Str ong car sales in China in 2009 pushed the auto market to the largest in the world, and 2010 is quite a little follow the positive trend. 4 Chinas self-propelling Sector Prepared for IEICI Updated November 2010 (Original April 2009). spring China Association of self-propelling Manufacturers (CAAM) In the first nine months of 2010, automobile sales reached 13. 08 million units, up 36. 1% from a year ago. Over 9 million of the total sales were passenger cars and 3. 24 million were commercial vehicles. CAAM predicted that the 2010 annual sales will reach a record of 17 million units. It is wide believed that Chinas automotive market currently has the most growth potential in the world. Chinas 2009 per capita private car ownership was 4. 78%, cold less than the 40% average of developed countries, and even less than other emerging markets much(prenominal) as Russia, Brazil and India.This is a strong meter reading that Chinas domestic market is far from world overly saturated. fit t o CAAM predictions, growth in the auto industry will remain strong until 2020 with annual growth expected to consistently ply from 13 to 15 percent. The total number of vehicles will jump from 67 to 150 million. Sales in larger tierone and tier-two cities as well as rural areas should keep growing at a rapid pace over the next few years and high growth areas will move from eastern China to the central and western regions.Market Players There are currently more than 100 whole-vehicle manufacturers and nearly 8,000 automotive split manufacturers in China, located primarily in Southern, Eastern, and Northeastern and central China (see the be on the right). Together, the top ten passenger vehicle manufacturers (seven of which are joint ventures (JVs) make up well-nigh 90% of Chinas market share (see the table beneath). Nearly every study ball-shaped vehicle manufacturer has realised JV operations in China. 5 Chinas self-propelling Sector Prepared for IEICI Updated November 2010 (Original April 2009).Top 10 Passenger vehicle Manufacturers in China (2009) Rank 1 2 3 4 5 6 7 8 9 10 Source CAAM Company SAIC1 FAW2 Dongfeng Chana (incl. Hafei) Beijing Auto Guangzhou Auto Chery BYD Brilliance Geely Others HQ Shanghai Changchun Wuhan Chongqing Beijing Guangzhou Hefei Shenzhen Shenyang Taizhou JV participator GM, VW VW, Toyota, Mazda PSA, Nissan, Honda Ford, Mazda, Suzuki Hyundai Daimler Honda, Toyota, Isuzu, Fiat N/A N/A BMW, Toyota N/A Sales (Unit) 2,705. 5K 1,944. 6K 1,897. 7K 1,869. 8K 1,243. 0K 606. 6K 500. 3K 448. 4K 348. 3K 329. 1K 1,750K Market piece of land 19. 83% 14. 25% 13. 91% 13. 70% 9. 11% 4. 45% 3. 67% 3. 29% 2. 55% 2. 41% 12.84% Import Positive demand growth for automobiles and components has not only ca hired domestic industry development, merely has led to increase attention from leading foreign automotive manufacturers eager to expand into the rapidly growing market. conflicting automotive manufacturers have also been encouraged by lower i mport tariffs, which have been move for whole vehicles from 70-80% to 25% since China joined the World cope Organization (WTO). Import tariffs on Semi-Knocked-Downs (SKDs) and Complete-Knocked-Downs (CKDs) have dropped from 50% to 25%, while import tariffs on vehicle components have dropped from 15% to 10%.1 2 Shanghai Automotive Industry Corporation First Auto Works 6 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Chinas automotive import growth was slowed payable to weaker demand caused by the spheric economic crisis of 2009. Annual total import were USD 33. 1 billion in 2009, representing a year-onyear increase of only 5. 34%. Assisted by government incentive programs and Chinas economic recovery, Chinas auto import total bounced back from a sluggish 2009, billow by 130% to USD 27. 22 billion in the first half of 2010. Imported European luxury cars had a remarkable 237.2% increase in 2010 compared to the same period the previous yea r. Chinas automotive component imports grew to USD 12. 7 billion in the first half of 2010, a 90% increase over the same period of 2009. Drivetrain, engine and automotive body components accounted for over 60% of the total component imports (see chart). More than 80% of the imported components came from Japan, German, Korea, and the United States. The main groups of imported automotive components to China can be divided into three categories ? Japanese and Korean OEMs and Tier I suppliers Generally these companies tend to only use suppliers from their country of origin.For example, Toyota typically sources components from Japanese JVs or Wholly Owned Foreign Enterprises (WFOEs) on the mainland, or at one time imports from Japan. Such practice tends to result from strict quality requirements, cultural compatibility and logistical concerns. German OEMs and Tier I suppliers These companies typically import components in the areas where Chinese suppliers are weak (e. g. safety systems for high-end passenger cars). The US and cut OEMs operating in China have not increased their automotive component imports as such(prenominal) as their peers for different reasons.US OEMs have steadily increased their sourcing from local Chinese suppliers for vehicles make in China to stay competitive, and French OEMs are facing a shrinking market share in China. ? ? Chinese OEMs are emerging buyers of imported automotive components, especially in the segments of hybrid and electric vehicles and Chinese-brand luxury vehicles. 7 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Export The impact of the economic crisis in 2008-2009 bosomd umteen multinational companies to tighten up their sourcing of automotive vehicles and components from China.According to CAAM, China exported a total of 369,600 units in 2009 worth USD 5. 19 billion, which was down by 46% from 2008. Chinas auto exports rebounded as the world-wide market recovered in 2010 , with 250,100 vehicles exported in the first six months (up 55. 93% year-on-year). Passenger vehicle exports surged 115. 93% to 116,500 units, while commercial vehicle exports increased 25. 50% to 133,900 units. Algeria, Vietnam and Egypt were the major whole-vehicle export destinations in the first half of 2010. The auto components export growth has witnessed even more impressive growth than whole-vehicles.Exports increased 54. 11% to reach USD 18 billion in the first half year of 2010, with drive system components exceeding 50% of the total by value. More than 50% of the components were exported to the USA, Japan, South Korea, Germany and the United Kingdom. 1. 2 MARKET STRUCTURE Supplier Landscape The automotive supplier landscape in China is extremely fragmented. According to CAAM, there are approximately 8,000 automotive enterprises scattered across various segments including full vehicle manufacturing, vehicle refitting, motorcycle production, engine production and automotive parts manufacturing.Most of these companies specialize in lower-end parts and lack the capital needed to gift in production of higher quality products. Seven of Chinas ten largest components manufacturers are foreign companies, and about 70% of the countrys USD 160 billion auto supply market is occupied by foreign companies or joint ventures. There are approximately 120 OEMs in total, 40% of which produce passenger vehicles. One of the key contributors to the fragmentation of the automotive market as a whole is that Chinese suppliers serve a large amount of separate OEMs.The worlds leading automotive companies are all well-established in China. OEMs are represented by Ford, General Motors (GM), Volkswagen (VW), Daimler, BMW, PSA, Mazda, Nissan, Honda, Toyota, Hyundai, and tier-one international companies including Bosch, Delphi, Denso, Johnson Controls, Lear, Magna, Visteon, Yazaki, ZF, Arvin Meritor and TRW. 8 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (O riginal April 2009) Most of the international automaker and component manufactures have invested heavily in China in attempts to gain a competitive edge.For example, GM, Ford and Jaguar Land Rover have established their Asia Pacific provide in China. GM, VW and Honda have also opened China RD centers and have begun to design car models specifically for the Chinese consumer. International automotive components companies have also expanded their presence in China. For instance, BorgWarner recently opened a China Technical Center. ZF announced the establishment of its Asia Pacific headquarters in Shanghai as well as a new Shanghai RD center. Eatons Asia Pacific headquarters is in Shanghai.Rapid expansion from international firms has let to foreign-invested automotive components suppliers holding 70% of the Chinese market share. Most of the top Chinese automotive parts manufacturers are wholly owned domestic companies such as ASIMCO, Wanxiang, Hongteo, Fuyao, Dicastal, Wanfeng and othe rs. These companies could be potential competitors or partners for Israeli companies. In response to the soaring domestic demand, Chinese automotive component manufacturers have ramped up their production capacities significantly, but this has also led to an increase in quality complaints.Key Challenges for the national Industry Chinese suppliers are now looking beyond the domestic market and improving their production process to emerge as true global competitors. However, further enthronement in RD is still required before Chinese manufacturers can truly compete globally, as the industry still lacks technological capability and suffers from quality issues. Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Chery Automotive (Chery) ? Founded in 1997 and now has an annual production capacity of 650,000 vehicles, 400,000 engines, and 400,000 narrow aparts of gearboxes.? Continues to expand into the overse as market and has established specifys in 16 countries decent the biggest Chinese vehicle exporter for seven consecutive years. ? Chery Automobile mental testing Technology Center opened in July 2010, which became the largest auto lab in Asia. The company will invest RMB 2. 4 billion in 2010 to accelerate its new model development. ? Chery now owns a full set of manufacturing and RD facilities, including four car plants, two engine plants, a gearbox plant, an automobile engineering research institute, an automobile planning and design institute and an automobile test technology center.? Have extensive technological and crease relationships with overseas auto companies. Chery signed an agreement with Chrysler to produce Chery made cars under the Chrysler brand to be exchange in the United States and Mexico. ? Chery Quantum Auto. Ltd is a joint venture between Chery and Quantum LLC under an Israeli Group. They aimed to invest USD 334 million in 2010 to develop high-end cars and SUVs for the overseas market. 9 RD capability Chinese automotive component manufacturers are able to manufacture products when they are provided with designs and specifications, however most of them lack design, engineering and RD capabilities.Owing to weak RD and engineering capabilities, many local suppliers have opted to enter into technical collaborations or JVs with leading international suppliers with the goal of facilitating the transfer of technology and improve basic product engineering capabilities. A growing number of Chinese auto parts suppliers have begun to invest in and acquire western firms. Domestic RD capabilities of Chinese automotive part manufacturers have historically been trammel due to the small-scale of most operations and a shortage of investiture in laboratory facilities in comparison to international firms.Taking smells to remedy the situation, the Chinese government has move to encourage investment in RD for core systems, such as engines, transmissi on systems, steering systems, brake systems and thrust control systems. Safety and reputational issues Incidents and product recalls have raised questions about the quality and safety standards of Chinese manufactured automotive components. According to the 2009 China Automotive Product Quality After Service Quality report, among the 9359 complaints record about Chinese made cars, 19.5% were related to engine enigmas 10. 5% to steering systems 10. 7% to braking systems 18. 5% to automobile plan of attackories and electronics and the remaining 40. 8% related to the gearbox, clutch, front and rear axles, suspension systems and air conditioning systems. As a result of complaints and recalls, as well as other non-automotive related manufacturing scandals in China including cyanuramide milk, contaminated pet food, and anti-freeze laced toothpaste, Chinese manufactures are facing serious issues about their reputation.This is a problem local manufacturers will have to overcome if they want to increase their competitiveness on the global stage. The drivers are in place for Chinese domestic manufacturers to move to the forefront of the global automotive industry, but stiff domestic investment in RD and improvements on quality and reputation are a necessary prerequisite. 1. 3 EMERGING INDUSTRY TRENDS Industry Drivers The rapid expansion of the Chinese automotive industry has been largely attributed to the growth in domestic demand for passenger vehicles and international demand for affordable automotive components.The Chinese government also continues to play an important role in encouraging the growth of the industry. 10 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Tier II and Tier III cities emerge as market growth engines In 2010, most multinational automakers have included a focus on cardinal and Western China markets into their strategies in order to capture future growth opportunities. For example, Volkswagen is ra mping up capacity of its Chengdu plant more than doubling its production of Sagitars and Jettas from 150,000 to 350,000.GAIC Toyota (a JV between Guangzhou Automobile Industry Corporation and Toyota) is considering building a small and price-competitive car to target the lower end of the market. The JV also announced plans to expand its dealership network across central and Western China. Central and western China have emerged as the main growth engine of the automotive market. According to CAAM, automobile sales in second and third-tier cities in the first nine months of 2009 surged 41 percent and 51 percent respectively, while sales in the firsttier cities increased by 34 percent.Domestic demand has been fueled by rising incomes and a growing middle class creating a larger consumer culture. The purchase of an automobile is increasingly becoming a symbol of financial success. In the past, the focus has been on coastal cities. Since 2009, tier II and tier III cities have emerged as the strongest market growth engines (see more details on your left) Even though large cities in China are facing serious traffic congestion issues, Chinese have not been deterred about making new automobile purchases.China overtook the U. S. as the worlds number one automotive market in January 2009. The positive developments in the passenger vehicle industry have benefitted both domestic auto manufacturers (which are emerging from their infancy stages and developing competitive capabilities) and major international automotive giants (which have increased investment into China to expand their presence). However, with per capita car ownership was still only 4. 78% in 2009, still far below the 40% average in developed countries.This is a strong sign that domestic demand for passenger vehicles will remain high in years to come. The domestic aftermarket for automotive components is increasingly becoming an important driver of the industry. More than thirteen million cars are sold annua lly in China which is leading to a growing market for automobile repairs and further stimulating domestic demand for automotive components. International demand for automotive components has also increased as international automotive firms face pressures to burn costs and take advantage of more economical alternatives abroad.Chinas inexpensive labor force presents an attractive option for producing lower-cost automotive components, which were initially primarily for the international aftermarket but are increasingly being used by international OEMs. The majority of leading international automobile OEMs have established global sourcing offices, RD centers as well as regional headquarters in China. 11 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Finally, the Chinese government continues to play an important role in driving the industry.Post-WTO addition concessions have resulted in lower import tariffs, giving international automotive firms more access to the domestic market. Beijing has actively encouraged the establishment of JV RD centers with preferential tax policies designed to facilitate the transfer of knowledge and technology. The government has pledged substantial funds towards automotive technology innovation, upgrades, and the RD of alternative-fuel automobiles and components. They are also position restrictions and quotas requiring all vehicles that are used for government use to be produced domestically.Industry Consolidation China is inflexible to restructure its automotive industry, with the hopes of changing the market from many fragmented manufactures to two or three dominating domestic firms. According to the State Councils regulations released in early September 2010 which called for greater industrial consolidation, the automobile industry was at the top of the list of targeted sectors. The State Council set the goal of reducing the number of major automakers who are responsible for 90% of dom estic sales output, from 14 to 10.Under the plan two or three companies would dominate the industry, responsible for producing more than three million vehicles annually, while four others would have annual output capacity of 1. 5 million units. The State Council named the following four groups as potential industry heavyweights, urging them to take advantage of consolidation opportunities FAW Dongfeng Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Shanghai Automotive (Group) Corp (SAIC) Industry ? Headquartered in Shanghai, it is one of the top three auto groups in China.? Mainly engaged in the manufacturing, sales and RD for passenger cars, commercial vehicles and auto components. ? The company is class-conscious 223 of the Fortune 500 companies with consolidated revenue of US$33. 6 billion in 2009. ? Sold over 2. 7 million vehicles in 2009, making up almost 20% of Chinas market. ? SAIC invested over 10 billion RMB on new model development in the past 3 years, and will launch hybrid and electric vehicles in 2010 and 2012. ? Acquired Nanjing Automotive (Group) Corp (NAC) in 2007 and became the largest manufacturer in China with a consolidated annual production of 2 million units.? SAIC has opened branches in the USA, Europe, Hong Kong, Japan and Korea. It has established a long-term cooperation with GM and Volkswagen. SAIC and GM formed Shanghai GM and the Pan Asia Technical Automotive Center (PATAC) in 1997 and launched 8 additional China joint ventures, including SAIC-GM-Wuling, GMAC-SAIC Automotive Finance Company, and General Motors SAIC enthronisation Limited. ? Shanghai Volkswagen (a joint venture between SAIC and Volkswagen AG) recently announced it will build a ordinal assembly plant in Jiangsu. The plant will have an annual production capacity of 300,000 vehicles and start operation by the end of 2012.12 SAIC and Changan. Additionally, it named four regional leaders th at it encouraged to consider regional consolidation Beijing Automobile Guangzhou Automobile Cherry and Sinotruck. All of these companies are passenger vehicle manufacturers with the censure of Sinotruck which manufactures heavy-duty trucks (sales of over 125,000 units in 2009). Industry analysts predict that the coming wave of MAs within the automotive sector could see a deal that breaks the USD 1 billion mark, more than doubling the largest deal to date which was the USD 450 million purchase of General Motors.Nexteer steering components unit by a joint venture established by Beijings Tempo Group and the Beijing government. Global Expansion As the leading automotive market, China automakers are accelerating global transformation to increase their presence in the overseas market. Zhejiang Geely Holding Group (one of Chinas largest independent carmakers) recently completed its acquisition of Ford Motors Volvo brand for USD 1. 5 billion. This is an indicator that Chinese automakers h ave begun to recognize the power of strong brand reputation.Geelys Volvo bid is the largest takeover in Chinese auto industry and will provide a pattern for Chinese carmakers to expand on base and acquire companies with a strong reputation. Beiqi Foton, Chinas leading commercial automaker followed Geelys step and announced its global expansion plan. This includes setting up a production base in Russia by 2012 with an annual capacity of 100, 000 vehicles and building five other plants in Brazil, India, Russia, Mexico and Thailand before 2015. raw(a) Energy Vehicle Focus of Future Development High oil prices, air pollution, and Chinas commitment to reduce carbon emissions have led the automotive industry to explore alternative energies. The Chinese government has launched policies and incentives to attain the development of new energy vehicles, including electric (hybrid, plug-in and battery), fuel cell, and hydrogen-powered. China has identified new energy vehicle as one of the sev en emerging strategic industries. Many estimate China will buy the farm the worlds largest new energy vehicle market by 2020.The Energy Saving and New Energy Vehicle Development Plan (2011-2020) and the Automotive Industry 12th Five-year Plan (2011-2015), two of the key policies expected to guide the development of new energy vehicle industry, are expected to come out by the end of 2010. The Ministry of Industry and Information Technology (MIIT) is the principal drafter of these plans which are later submitted to the State Council for approval. The plans set the following key targets for the new energy vehicle industry by the end of 2020 ?In the following five years China will aggressively support the development of key components of energy effective and new energy automobiles. For electric motors and 13 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) ? ? batteries manufacturers, China hopes that three to five backbone enterprises will emerg e with their combined market share exceeding 60%. China will produce 5 million new energy vehicles and become the number one producer of new energy vehicles in the world by 2020 Average fuel economy of passenger vehicles will be 4.5 L/100 kilometers by 2020, the same as European standards. The plans will become the backbone policy for the entire new energy vehicle industry, as it provides direction for earthly concern funding, sector focus and industry structuring. Most important to pay attention to is that Chinese companies are potential to reap the most benefits from these structured strategies. To support indigenous innovation, the Chinese government has stated that the two or three key new energy vehicle component manufacturers will most likely be domestic companies, either state-owned or private.2 REGULATORY OVERVIEW ? Government tariffs on automotive imports are in compliance with WTO rules, but minimum capital barriers still exist for foreign investors. The government has cr eated some incentives to spur RD partnership, and regulations for foreign distributers have been eased somewhat. The government has plans to implement higher auto emissions standards for new cars in China. So far four regions have implemented China IV emission standards (Beijing, Shanghai, Nanjing and Guangdong Province).The Chinese government views the development of the new energy vehicle industry in China as a top antecedency and has introduced a wide range of subsidies and policies in its favor. ? ? Chinas automotive industry supply chain is very broad with many components such as import and export, manufacturing, environmental protection, technology upgrades and quality control. As such, the industry is regulated by a range of government organs, both at the national and sub-national level. The below chart illustrates the key central level regulators of the automotive industry, and their pertinent responsibilities.14 Chinas Automotive Sector Prepared for IEICI Updated Novembe r 2010 (Original April 2009) The automotive industry is subject to a number of laws and regulations. The key regulations that are relevant to Israeli companies are addressed below. 2. 1 FOREIGN ACCESS TO THE CHINESE AUTOMOTIVE MARKET Trade The Chinese auto sector is competitive and has a well-developed supply chain. Imports of foreign-made auto parts will likely decrease as OEMs continue to increase their local capacities. At the same time, higher quality Chinese auto parts are increasingly being integrated into the global supply chain.Currently the import tariff for whole vehicles is 25% and for automotive components is 10%. 15 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Investment Foreign businesses must meet a number of requirements in order to access Chinas automotive market. The Chinese government has set requirements for minimum understanded capital when a firm wants to establish an automotive facility which is RMB 500 million (USD 75 million3) for automobile financing, RMB 500 million (USD 75 million) for engine production and RMB 10 million (USD 1. 5 million) for an RD center.All projects are subject to government approval. Foreign firms looking to produce passenger vehicles cannot set up WOFEs, but must partner with a local Chinese firm in the form of a JV, with the foreign partners stake limited to 50%. On the other hand, China offers fiscal and financial incentives to attract foreign investment in RD strategies as part of the central governments strategy to speed up the transfer of international technology. China currently provides tax incentives for enterprises engaged in research and development activities, allowing RD enterprises to deduct 50% of RD expenses.Suppliers are most often required to localize or invest in China and Israeli companies kindle in tapping into the vast Chinese market will need to consider establishing a local presence. IPR Issues in China While the protection of mental propert y rights (IPR) remains a contentious issue for companies in China, the countrys laws and regulations have progressed considerably in recent years, with the large majority now pliable with requirements of the WTOs TRIPS agreement.The main challenge surrounding IPR protection in China is the lack of effective enforcement of the quick regulations. Enforcement issues arise from a range of root causes, including the relatively recent introduction of IPR legislation and concept of intellectual property in general, the absence of a fully independent judicial system, and provincial officials often defensive attitude towards local job creating counterfeiting industries.While most foreign companies considering business operations in China may have to accept an unavoidable degree of IPR infringement, there are nevertheless a number of actions that a company can take in order to limit their IPR-related risk ? ? ? Ensure to register your patents, copyrights, or trademarks with the relevant bu reaus Ensure that your trade or other.